THE EFFECTS OF WORKING CAPITAL MANAGEMENT ON COMPANY PROFITABILITY IN THE ROMANIAN CONSTRUCTION INDUSTRY

Purpose - The goal of the research presented in this paper is focused on providing empirical evidence on the effects of working capital management on the profitability of Romanian firms from construction industry. Methodology/approach - The present analysis is based on literature review as well as on data from companies in the construction industry listed on the Bucharest Stock Exchange for a period of thirteen years covering the period between 2003 and 2015. Findings - The results indicate a negative relationship between profitability, measured through return on assets, and cash conversion cycles. The negative association implies that, when the cash conversion cycle decreases, the profitability of the company increases. Thus, managers can enhance the firm's profitability by handling correctly the cash conversion cycle and by keeping its components at an optimal level. Research limitations/implications - The limitation of this study is that it was performed only on the firms from construction industry listed on the Bucharest Stock Exchange. Nevertheless, the study is meant to provide important insights for managers in terms of working capital management and at the same time it constitutes an appreciable contribution to the literature in the field. Practical implications - The findings of this study suggest that managers can create value for their shareholders by shortening inventory conversion periods and by reducing the number of days for accounts receivables. Originality/value - This paper examines the relationship between working capital management and profitability of the firms from construction industry. The profitability can be enhanced if companies manage their working capital in a more efficient way.